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Audit Warning to Govt

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Promise of Better Accounting for Govt

In the last sitting of Niue Assembly the island’s attention was largely focused on the $7 million emergency package to deal with the corona virus pandemic and rightly so. The island is virus free and so for the time being the Niue Government has decided that the best course of action is border control and isolation.

Those who persevered with the patchy live relay of the session on radio would have been rewarded with something of a treat – the tabling of a report by the Auditors to the Assembly. The Report covers the status of the audits of the Government of Niue and its subsidiaries from 2014 to December 2019. There is specific reference to the completed audit of accounts for the financial year 2014-15 and a lot more besides.

The tabling of the audit report from the Auditors is nothing unusual; it is a requirement in law that such must be presented to the Niue Assembly each year. It is part of the checks and balances in ensuring that the government is expending the funds from the national coffers as appropriated by the Assembly. It is one way of making the government accountable to the Assembly and hence to the wider electorate. In the normal course of events, following the tabling of the report, it comes back to the Assembly in the next sitting for the scrutiny of the members. What was unusual this time around was that the Premier responded to the Auditors with a statement from his Government.

Those who have been following the events in the Assembly would know of the on-going sparring between the Government, the Assembly and the Auditors over the state of the financial records. It is a requirement of the laws of Niue that at the end of each financial year, a complete set of accounts, must be submitted for auditing by the Auditors – in Niue’s case, this is Audit NZ. There is however a problem with this requirement. For a number of years now – even before the current Talagi Administration – Treasury has not been able to complete a full set of accounts in time, as required by statute. The timing is crucial if the audited accounts are to be of any use at all. It is not exactly rocket science but an audit report issued some four years after the fact is about as useful as a snow plough on a tropical island.

According to the report, the last set of accounts to be audited was for the financial year 2014-2015 which is the good news. The not so good news is with regard to the auditor’s opinion. The Auditor-General has signalled that he will be issuing an unmodified audit opinion for the Government’s usual financial statement for the various departmental operations and donor transactions.  This simply means that the Auditor is satisfied that the accounts are a fair record of the activities for the year.

It’s a different story though when it comes to the consolidated Government of Niue’s financial statements. The problem here is with the Government’s business operations, the State-Owned Enterprises, the SOEs. In audit-speak if the Auditors issue a ‘disclaimer audit opinion’, it is not good. It means that after examining the accounts in depth the Auditors are unable to express an opinion on whether they fairly reflect the organisation’s activities for the period under review. In this regard therefore, the Auditor-General had forewarned the Assembly that “due to insufficient records and a lack of supporting information for significant amounts in the financial statements relating to Niue Philatelic and Numismatic Corporation”, the Auditors are unable to express an opinion on the consolidated financial results.

The Niue Philatelic and Numismatic Corporation [NPNC] is a significant part of the government businesses but the audit report says that it has failed, since 2012 to file income tax returns, PAYE returns and is not registered for Niue Consumption Tax. “The Government should lead by example” the report said.

Unauthorised expenditure was singled out for special mention. But what exactly is ‘unauthorised expenditure’? First it’s important to point out that it is not unusual for a government to have unauthorised expenditure, yes even in New Zealand. Unauthorised expenditure is expenditure that has not gone through the process of being appropriated or approved by the Niue Assembly. This can happen for a number of reasons such as when government is confronted by expenditure it had not anticipated. The fix is relatively straight forward; bring into the Assembly a Supplementary Appropriation Bill with details of the unauthorised expenditure. Unfortunately, that did not happen in 2014-2015. “This is in breach of article 56(3) of the Constitution”, quoted the report.

In total the Audit report highlighted nine areas for special mention in the accounts for 2014-15. While four years has passed, it’s understood that these areas of concern still persist.  Without getting too bogged down here’s a glimpse:

Financial stability – the island cannot function without considerable assistance from New Zealand and other donors, but for these benefactors to continue with their support, they need to be confident in the ability of the government. “Timely financial information is a critical element in ensuring trust and confidence in government”. It appears also that the old trick of using excess donor funding to pay wages and pensions is still there.

NNP Corp – As the report stated, “…there is a lack of transparency and accountability associated with NPNC”.

Capability and Capacity – in summary, the government does not have the accounting staffing or the systems to cope with the number of State-owned businesses and its normal core function.

Tax department – not issuing timely assessments or following up on tax returns and payments; registered companies including those of the government are not completing tax returns or NCT; import duty and port charges not collected.

Donor funding and aid money management – the formation of the Project Monitoring and Coordination Unit was specifically set-up to address some of the concerns.

Unauthorised expenditure – Taken from the Report: “We also recommend that Treasury ensure that any expenditure in excess of appropriation is properly approved.”

Documentation of decisions – There is a lack of clear documentation of cabinet decisions on when and how SOEs are to operate.

Asset impairment and valuation  –  The value of the government’s plant and equipment is $33.9 million. This requires updating each financial year.

Completeness and quality of information – It seems that government subsidiaries lack a robust system and process to document and retain the information to support transactions.

In response to the Auditors the Premier also presented a report which acknowledged the current difficulties with the accounts. What is of more interest is the government’s strategy in addressing the current difficulties.

A significant development for the Government and one that is commended by the Auditors, is the appointment of the accounting firm Deloitte New Zealand to assist in bringing the financial statements up to date.  The intention was to complete all the accounts up to the financial period ending 30 June 2019 by 30 June 2020. That deadline may not be possible now with the corona virus pandemic.

A proposal that will be welcomed by the electorate is government’s intention to review the structure, administration and reporting of the SOEs. In the past the government has resisted calls for the SOEs to be more transparent arguing that the information is ‘commercially sensitive’.  This proposal should go some way towards easing the relentless criticism from some politicians and others.

Government advisers together with the Public Service Commission will be required to review and recommend ways for “increasing capacity and effectiveness in relation to financial management and reporting.”  Senior employees at Treasury have often made it known that they need more qualified personnel to assist with an increasing and more complex work load.

Despite all the myriad of issues and challenges faced by the government accountants in preparing the annual accounts, there is hope that with the help of both Deloitte and the Asian Development Bank much of the outstanding work will be completed soon – pandemic notwithstanding.  

For the time being the electorate is left to ponder on the reasons why the accounting records are the way they are – useful as a historical record but virtually meaningless in assisting the government to better manage its resources. In reading the Auditor-General’s report to the Assembly, there is a sense that, in our quest for a prosperous Niue, the processes and procedures, the checks and balances that were once the hallmark of our bureaucracy have been allowed to be relaxed or at worst, ignored.

The tribal leaders, after 30 May, will have some serious work to do.

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